Liquidity risk and liquidity timing in the cross-section of Indian equity mutual fund returns
By: Suresh Kumar and Hyder Ali
References
- Acharya, V. V., & Pedersen, L. H. (2005). Asset pricing with liquidity risk. Journal of Financial Economics, 77(2), 375–410. https://doi.org/10.1016/j.jfineco.2004.06.007
- Aiken, A. L., & Kang, M. (2023). Hedge fund manager timing and selectivity skill over time. A holdings-based estimate. Finance Research Letters, 58, 104439. https://doi.org/10.1016/j.frl.2023.104439
- Alam, M., & Ansari, V. A. (2020). Mutual fund managers’ market timing abilities: Indian evidence. Journal of Asset Management, 21(4), 342–354. https://doi.org/10.1057/s41260-020-00166-1
- Ali, H. (2021). Empirical studies on the conditional CAPM and equity premium prediction. The University of Manchester.
- Ali, H., & Naz, S. (2025a). Forecasting equity premium in the face of climate policy uncertainty. Journal of Forecasting, 44(2), 513–546. https://doi.org/10.1002/for.3206
- Ali, H., & Naz, S. (2025b). Out-of-sample equity premium prediction: A voting approach to forecast combination. Annals of Finance, 21(3), 243–281. https://doi.org/10.1007/s10436-025-00466-9
- AMFI–CRISIL. (2024). AMFI – CRISIL Factbook 2024. Association of Mutual Funds in India & CRISIL Intelligence.
- Amihud, Y., & Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17(2), 223–249. https://doi.org/10.1016/0304-405X(86)90065-6
- Amihud, Y., & Mendelson, H. (1991). Liquidity, asset prices and financial policy. Financial Analysts Journal, 47(6), 56–66. https://doi.org/10.2469/faj.v47.n6.56
- Bechtel, A., Ranaldo, A., & Wrampelmeyer, J. (2023). Liquidity risk and funding cost. Review of Finance, 27(2), 399–422. https://doi.org/10.1093/rof/rfac020
- Bekaert, G., Harvey, C. R., & Lundblad, C. T. (2007). Liquidity and expected returns: Lessons from emerging markets. Review of Financial Studies, 20(6), 1783–1831. https://doi.org/10.1093/rfs/hhm030
- Bodson, L., Cavenaile, L., & Sougné, D. (2013). A global approach to mutual funds market timing ability. Journal of Empirical Finance, 20, 96–101.
- Brunnermeier, M. K., & Pedersen, L. H. (2009). Market liquidity and funding liquidity. Review of Financial Studies, 22(6), 2201–2238. https://doi.org/10.1093/rfs/hhn098
- Cao, C., Simin, T. T., & Wang, Y. (2013). Do mutual fund managers time market liquidity? Journal of Financial Markets, 16(2), 279–307. https://doi.org/10.1016/j.finmar.2012.10.004
- Chaieb, I., Errunza, V., & Langlois, H. (2021). How is liquidity priced in global markets? Review of Financial Studies, 34(9), 4216–4268. https://doi.org/10.1093/rfs/hhaa125
- Chen, Q., Goldstein, I., & Jiang, W. (2010). Payoff complementarities and financial fragility: Evidence from mutual fund outflows. Journal of Financial Economics, 97(2), 239–262. https://doi.org/10.1016/j.jfineco.2010.03.016
- Chernenko, S., & Sunderam, A. (2016). Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds. NBER Working Paper, 22391. https://doi.org/10.3386/w22391
- Coval, J., & Stafford, E. (2007). Asset fire sales (and purchases) in equity markets. Journal of Financial Economics, 86(2), 479–512. https://doi.org/10.1016/j.jfineco.2006.09.007
- Dang, T. L., & Nguyen, T. M. H. (2020). Liquidity risk and stock performance during the financial crisis. Research in International Business and Finance, 52, 101165. https://doi.org/10.1016/j.ribaf.2019.101165
- Dong, X., Feng, S., & Sadka, R. (2019). Liquidity risk and mutual fund performance. Management Science, 65(3), 1020–1041. https://doi.org/10.1287/mnsc.2017.2851
- Falato, A., Goldstein, I., & Hortaçsu, A. (2021). Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets. Journal of Monetary Economics, 123, 35–52. https://doi.org/10.1016/j.jmoneco.2021.07.001
- Foran, J., & O’Sullivan, N. (2014). Liquidity risk and the performance of UK mutual funds. International Review of Financial Analysis, 35, 178–189. https://doi.org/10.1016/j.irfa.2014.09.001
- Giannetti, M., & Jotikasthira, C. (2024). Bond price fragility and the structure of the mutual fund industry. Review of Financial Studies, 37(7), 2063–2109. https://doi.org/10.1093/rfs/hhad095
- Goldstein, I., Jiang, H., & Ng, D. (2017). Investor flows and fragility in corporate bond funds. Journal of Financial Economics, 126(3), 592–613. https://doi.org/10.1016/j.jfineco.2016.11.007
- Goyenko, R. (2012). Treasury liquidity, funding liquidity and asset returns. https://doi.org/10.2139/ssrn.2023187
- Hassanein, M. (2022). Systematic market risk adjusted for liquidity cost in the banking sector. Archives of Business Research, 10(6), 232–246. https://doi.org/10.14738/abr.106.12513
- Idzorek, T. M., Xiong, J. X., & Ibbotson, R. G. (2012). The liquidity style of mutual funds. Financial Analysts Journal, 68(6), 38–53. https://doi.org/10.2469/faj.v68.n6.3
- IMF (International Monetary Fund). (2025). India: Financial sector assessment program — financial system stability assessment. IMF Staff Country Report, 2025/055. https://doi.org/10.5089/9798229001748.002
- Jiang, H., Li, Y., Sun, Z., & Wang, A. (2022). Does mutual fund illiquidity introduce fragility into asset prices? Evidence from the corporate bond market. Journal of Financial Economics, 143(1), 277–302. https://doi.org/10.1016/j.jfineco.2021.05.022
- Kacperczyk, M., Sialm, C., & Zheng, L. (2008). Unobserved actions of mutual funds. The Review of Financial Studies, 21(6), 2379–2416. https://doi.org/10.1093/rfs/hhl041
- Kang, W., Li, N., & Zhang, H. (2019). Information uncertainty and the pricing of liquidity. Journal of Empirical Finance, 54, 77–96. https://doi.org/10.1016/j.jempfin.2019.08.005
- Kumar, G., & Misra, A. K. (2018). Commonality in liquidity: Evidence from India’s national stock exchange. Journal of Asian Economics, 59, 1–15. https://doi.org/10.1016/j.asieco.2018.09.001
- Kumar, S., Nor, E., Nik Azman, N. H. N., & Ali, H. (2023). Commonality in liquidity: Evidence from emerging Asian actively-managed equity funds. Asian Academy of Management Journal of Accounting and Finance, 19(2), 233–257.
- Lee, H. T., Lee, B. S., & Jang, B. G. (2022). Stock prices, changes in liquidity, and liquidity premia. Finance Research Letters, 48, 102894. https://doi.org/10.1016/j.frl.2022.102894
- Liu, W. (2006). A liquidity-augmented capital asset pricing model. Journal of Financial Economics, 82(3), 631–671. https://doi.org/10.1016/j.jfineco.2005.10.001
- Lou, X., & Sadka, R. (2011). Liquidity level or liquidity risk? Evidence from the financial crisis. Financial Analysts Journal, 67(3), 51–62. https://doi.org/10.2469/faj.v67.n3.5
- Ma, X., Zhang, X., & Liu, W. (2021). Further tests of asset pricing models: Liquidity risk matters. Economic Modelling, 95, 255–273. https://doi.org/10.1016/j.econmod.2020.12.013
- Ma, Y., Xiao, K., & Zeng, Y. (2022). Mutual fund liquidity transformation and reverse flight to liquidity. Review of Financial Studies, 35(10), 4674–4711. https://doi.org/10.1093/rfs/hhac007
- Palwishah, R., Kashif, M., Rehman, M. U., & Al-Faryan, M. A. S. (2024). Asymmetric liquidity risk and currency returns before and during COVID-19 pandemic. International Review of Financial Analysis, 91, 102919. https://doi.org/10.1016/j.irfa.2023.102919
- Pástor, L., & Stambaugh, R. F. (2003). Liquidity risk and expected stock returns. Journal of Political Economy, 111(3), 642–685. https://doi.org/10.1086/374184
- Reserve Bank of India. (2020, April). RBI Announces INR 50,000 crore Special Liquidity Facility for Mutual Funds (SLF-MF). Press Release 2019-2020/2276. https://www.rbi.org.in/commonman/english/Scripts/PressReleases.aspx?Id=3210
- Sadka, R. (2010). Liquidity risk and the cross-section of hedge-fund returns. Journal of Financial Economics, 98(1), 54–71. https://doi.org/10.1016/j.jfineco.2010.05.001
- Securities and Exchange Board of India. (2017, October 6). Categorization and rationalization of mutual fund schemes. Circular. https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
- Sensoy, A. (2017). Firm size, ownership structure, and systematic liquidity risk: The case of an emerging market. Journal of Financial Stability, 31, 62–80. https://doi.org/10.1016/j.jfs.2017.06.007
- Shih, Y., & Su, X. (2016). Liquidity in up and down markets for asset pricing: Evidence from the Taiwan Stock Market. Asia-Pacific Journal of Financial Studies, 45(5), 729–754. https://doi.org/10.1111/ajfs.12150
- Söderlind, P., & Somogyi, F. (2025). Liquidity risk and currency premia. Management Science, 71(1), 518–537. https://doi.org/10.1287/mnsc.2023.01031
- Virk, N. S., & Butt, H. A. (2022). Asset pricing anomalies: Liquidity risk hedgers or liquidity risk spreaders? International Review of Financial Analysis, 81, 102104. https://doi.org/10.1016/j.irfa.2022.102104
- Wattanatorn, W., Padungsaksawasdi, C., Chunhachinda, P., & Nathaphan, S. (2020). Mutual fund liquidity timing ability in the higher moment framework. Research in International Business and Finance, 51, 101105. https://doi.org/10.1016/j.ribaf.2019.101105
- Wattanatorn, W., & Tansupswatdikul, P. (2019). An ability to forecast market liquidity—evidence from South East Asia mutual fund industry. Journal of Finance and Data Science, 5(1), 22–32. https://doi.org/10.1016/j.jfds.2018.10.002
- Wu, Y. (2019). Asset pricing with extreme liquidity risk. Journal of Empirical Finance, 54, 143–165. https://doi.org/10.1016/j.jempfin.2019.09.002
- Zhu, S., Liu, H., & Boryniec, T. (2023). Long-term reversal and value effects: The role of liquidity risk. Applied Economics, 55(14), 1546–1566. https://doi.org/10.1080/00036846.2022.2097634
Language: English
Page range: 105 - 133
Submitted on: Nov 2, 2025
Accepted on: Mar 3, 2026
Published on: Apr 10, 2026
Published by: Poznań University of Economics and Business Press
In partnership with: Paradigm Publishing Services
Publication frequency: 4 issues per year
Related subjects:
© 2026 Suresh Kumar, Hyder Ali, published by Poznań University of Economics and Business Press
This work is licensed under the Creative Commons Attribution 4.0 License.